The third quarter of 2010 was characterized by a rebound in global equity markets, which lead to rising stock prices. Income hungry investors are starting to realize that certain safe-havens such as US Treasury bonds do not look as attractive as dividend stocks. This has pushed many dividend stocks higher, particularly the ones with sustainable and growing distributions.
Back at the end of 2009 I selected four dividend stocks as part of a competition. The stocks that I selected were representative of the tobacco, real estate, master limited partnerships and utilities sectors. The main characteristic of these sectors was that they consist of stocks with above average yields. The higher yield not only softened investor losses during the second quarter of 2010, but also produced very good performance over the third quarter.
The stocks that I selected were not only attractively valued at the time, but also had sustainable and growing distributions. The companies include:
Realty Income Corporation (O) engages in the acquisition and ownership of commercial retail real estate properties in the United States. The monthly dividend company has paid rising dividends for 16 years in a row. Right now this dividend achiever yields 5.10% ( analysis)
Kinder Morgan Energy Partners, L.P. (KMP) owns and manages energy transportation and storage assets in North America. The second largest master limited partnership in the US has raised distributions for 14 years in a row. This dividend achiever yields 6.40% (analysis)
Consolidated Edison, Inc. (ED), through its subsidiaries, provides electric, gas, and steam utility services in the United States. The New York based utility company has raised dividends for 36 years in a row. This dividend aristocrat current yields 4.90% (analysis)
Philip Morris International Inc. (PM), through its subsidiaries, engages in the manufacture and sale of cigarettes and other tobacco products in markets outside of the United States. This global tobacco powerhouse has raised dividends every year since it was spun out of parent Altria Group (MO) in 2008. It offers not only a high yield, and a sustainable dividend, but also solid dividend growth potential. Yield: 4.50% (analysis)
Some of the companies such as Realty Income and Con Edison look overstretched at the moment. The hunt for yield has pushed these companies to levels of relative yield not seen for a while. Furthermore, given the slow dividend growth that they have experienced, I do not find them worthy of adding new money to these positions. The price you pay today would affect your total returns in the future. As a result, investors putting in new money in stocks like Realty Income (O) and Con Edison (ED) might not generate the same level of total returns as investors who bought the stocks at the end of 2008 for example. This being said however, these stocks are still at least a hold, as their dividends appear to be safe. But if you are in a DRIP plan in one of those stocks, you might be better off allocating the dividends in something more attractively valued.
Overall the picks I selected outperformed the picks of the other bloggers in the competition for a second quarter in a row. Here’s the ranking:
Dividend Growth Investor +21.34%
The Wild Investor +8.35%
Zach Stocks +0.84%
My Traders Journal -1.31%
Intelligent Speculator -7.86%
Million Dollar Journey -10.46%
The Financial Blogger -15.24%
Four Pillars -27.07%
While I own all of the stocks mentioned above, this stock picking competition is not representative of how investors should invest money. I believe that in order to be successful at dividend investing, one has to build a diversified portfolio of stocks, representative of as many sectors as possible. I would also add geographic diversification as a plus, as well as the need to build positions slowly over time, by dollar cost averaging.
Full Disclosure: Long ED,PM, KMR, O
- Reinvest Dividends Selectively
- Four Characteristics of The Best Dividend Growth Stocks
- 2010’s Top Dividend Plays
- Dividend Investors are getting paid for waiting
Warren Buffett is the most successful investor of all time. Warren Buffett was able to keep learning about investments and business from t...
When selecting a dividend stock, investors should look at the dividend last. Income investors should first focus on profitability when inve...
One of my favorite aspects of dividend growth investing is the ability to receive more passive dividend income, simply because I made the ri...
There are many risks to investing . One of the major risks that could ruin a portfolio’s chances of generating adequate dividends are p...
In my investing, look for businesses I can understand that have some sort of a competitive advantage that translates into consistent earn...
I believe that dividend investors have an inherent edge against everyone else on Wall Street. This comes down to several traits, which set ...
Rebalancing is the process where investors sell an asset that takes an above average allocation in their portfolio, and use the proceeds to ...
In order to become successful in any pursuit in life, one needs to define what success means to them. In my situation, I would consider mys...
Wal-Mart Stores Inc. (NYSE:WMT) operates retail stores in various formats worldwide. The company operates through three segments: Walmart U....
For the first three to four years of my transformation into dividend growth investing, I managed to develop a process of identifying attrac...